October 2011

Today I was looking at my business cases portfolio that I have prepared in the course of my part-time MBA studies at GWU School of Business and I noticed that I have not published any cases from my Marketing classes yet. So I found one of the sections I prepared for a group project on Netflix, Inc.: DVD Wars. Shortly after I posted it in the Business School Cases section of the blog, I went to check out business headlines on CNNMoney only to find out that Netflx grabbed the top headline. I had not followed the Netflix stock closely, so I did not know about the planned quarter results announcement for today. Speaking of coincidences and prescience :-).

Anyways, at the time of checking, the Netflix stock lost almost 30% of its closing price in the after hours trading. This was the result of their 3-d quarter results announcement, and namely the fact that the company lost 800,000 subscribers in the quarter, and forecast of loosing even more customers in the ongoing quarter.

All this commotion brought me to thinking of the brand loyalty. How far it goes, how far it can be stretched, and what are the resistance points after which real damage to the company bottom line starts?

For years Netflix has been praised for their innovation and revolutionizing the video rental business:

Their movie recommendation algorithm was as much of the analytical marvel as the platform for quasi-social networking interactions of the movie buffs.

Their queuing algorithm for DVD deliveries was another example of business efficiency and analytical approach, which was praised by the industry analysts, and at least tolerated by the “frequent flyers” of the Netflixland who were shuffled from the top of the waiting list when they had too many new releases under their belt within a certain period of time.

I personally met quite a few “Netflixitizens” who were so enthusiastic about the service and everything it entailed, it almost felt like they were some kind of the ‘intellectual elite’, privileged club members of sorts compared to “unenlightened Blockbusterians” and the likes. In a way, it reminded me of the unconditional love and adoration felt and expressed by so many Apple fans for the company and its products under Steve Jobs in the last decade.

All this strong following came under severe testing this past summer when Netflix was forced to raise their prices for both mail and streaming service by more than 50% in anticipation of their contracts re-negotiation with the content providers. This caused so-called “price hikes rage” manifested in stock price plummeting almost 20% in one day and the mass exodus of Netflixitizens from “the land of plenty”. Of course, they did not hesitate to fan out their frustration at the exit.

The price hike effect was further exacerbated by quick introduction and then removal of Qwikster service which raised further questions about the company’s strategic vision or the lack of such.

So here comes the question of brand reputation and brand loyalty. How much can you get away with by capitalizing on, or exploiting, the customers loyalty? As Netflix CEO Reed Hastings wrote in a letter to shareholders: “We’ve hurt our hard-earned reputation, and stalled our domestic growth.” Obviously, the reputation is hard to build, and once built, the company can capitalize on it in a big way. But reputation is not something to be taken for granted, it needs to be continuously maintained and can be damaged quite easily by clumsy “elephant-in-the-china-shop”- like moves. As was the example with Netflix this past few months or Toyota recalls debacle last two years.

I believe they can recover, just like Toyota mostly recovered, just like Apple re-surfaced as the market leader in early 2000-s. But they need to be more in-tune with their own customers and their long-term strategy.

This situation with Netflix reminded me of another company and another CEO I had a post on recently – Harrah’s Entertainment and Gary Loveman. Both Hastings and Loveman seem to be very analytical in their approaches, but lacking in intuitive department. And, as the history shows, this misalignment can lead to rather costly mistakes.

As for my recommendations that I gave in the DVD Wars case, it appears that Netflix needs to put in order the basic 4 P’s of Marketing, before they embark on any alternative complementary strategies.

Ironically, I had to cancel my Netflix subscription two years ago when I started my part-time MBA program at GWSB, just don’t have time for movies anymore.

On Wednesday I got done with the first module of the Fall term at GWSB part-time MBA program . In the last week I was scraping up to finalize two group project papers, two final in-class group presentations and a final exam administered online. It was very taxing period, to say the least. I spent more nights writing well after midnight than I am willing to admit . Now it’s over and I am getting a little breather before the start of the second module.

I will have to do some semi-leisurely reading for my Macroeconomics class that I start next Thursday for the second module. I also have some negotiation simulation to prepare and conduct for my ongoing Conflict Management and Negotiations class that is due in two weeks, but I will consider it as a mini semi-vacation after the pressures of the last week.

Even though the past week was quite exhausting, I could not help but remember my emotions at the end of the first module of my first year in the part-time MBA program at GW School of Business. At that time I was seriously concerned about the grade I was going to receive for my Financial Accounting I class. And even an opportunity to watch a movie on TV after almost two months of “abstinence” seemed like a luxurious treat. I am more confident in my grades now than then, and I am not as hungry for movies, as I actually has watched a few of them during the half-term. I will probably still go to the movies with the family over the weekend.

As for “relaxing” activity tonight, I chose to watch “Final Offer“ recommended by our professor in Conflict Management and Negotiations class. If you are interested in the subject of business negotiations, and specifically union negotiations, I also recommend this documentary on negotiations between Canadian chapter of UAW and GM in 1984. It is actually quite appropriate time for watching the film since in the past couple of months there have been negotiations going on between the UAW and the “big three” for the next three years contract. Some of those negotiations are closed already, but some are still going on. Anyways, to get a behind the scenes scoop on how those negotiations done, you can watch Final Offer online. Quite and interesting account of real negotiations.

Another milestone in my blogging experience. Don’t have too much time to reflect on this now, but if you are interested in some background information on how this blog came to be, you can read the post I had a year ago on One Year Anniversary of this blog.

I would still like to share some brief facts on development of the direction of the Part-time MBA blog and some basic statistics. For two years I have a total of 182 posts published, including the one you are reading now. About a year ago I started sharing some of the business cases analyses I prepared for my classes in part-time MBA program at George Washington University School of Business. I did not really know at that time what kind of response it would get, but it turned out to be the most popular section of the blog in this past year. So far I published just 12 cases, and I will continually add more from my stash of prepared business school cases as the time permits. I probably have three times as many cases that I could share by now, but it takes time to re-format them for this site, so it is going to be a while before I put them all out. Still, keep checking out periodically for new additions to that section.

In this past year I had a privilege of becoming one of the contributing authors to Beatthegmat.com site – one of the leading sites for people preparing for business school. It started in 2005 as a source of information and help for those who prepared for GMAT test. But since then has grown tremendously beyond that original mission and now is a major authority not only on GMAT preparation, but on “all things MBA”. Here you can learn the short history of that site and its current staff information.

So, you are curious to learn what the most popular posts/pages of this blog were in the past year? Apart from the home page, the top five most popular destinations on this blog are:

Each of these posts received over one thousand pageviews in the past year. I hope all these visitors for business cases are not there for plagiarizing, but to help jump start their own thought process, get some ideas and reference points, and may be learn some different approaches that they have not considered in their own preparation of the cases – as I originally stated in my introduction to that section.

This is my year-end results of blogging in brief. See you around for more!

Last time I had a post on George Washington University School of Business rise in Financial Times MBA ranking there was a lot of fanfare going around the school. I think I received at least 3 or 4 emails within a couple of days from different sections of the business school and university heralding the good news. This time I have not heard from the school yet. I hope there is some cork-popping and cheering going around in the background, it just did not trickle down to us yet.

All the rankings have slightly or not so slightly different focus on what and how they measure. You can read detailed Economist ranking methodology, but in a nutshell they rank MBA programs based on four criteria:

open new career opportunities -35%

personal development/education experience -35%

increase salary – 20%

potential to network -10%

So I guess there is some reason for celebration for the GWSB faculty and administration. For me, however, it is time for a final push for my assignments for classes in the first fall module. I still have two group papers not finalized, one presentation for the group project, and one final exam. Once I am done with these, I will sure clink glasses to GWSB success

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